Key takeaways
- Federal Reserve History calls the Great Depression the longest and deepest downturn in the history of the US and the modern industrial economy, running from August 1929 to the Second World War.
- The US stock market lost 85% of its value between September 1929 and 8 July 1932, according to Wikipedia.
- Federal Reserve History says the money supply fell by nearly 30% from autumn 1930 to winter 1933 as banks failed, with prices falling by a similar amount.
- By 1933 US unemployment had reached 25% and 9,000 of 25,000 banks had gone out of business; world GDP fell by an estimated 15% between 1929 and 1932.
- Wikipedia notes the precise causes are disputed, between explanations centred on the real economy and those stressing failures of monetary policy.
The Great Depression was a worldwide economic collapse that began in the United States in 1929 and lasted, depending on the source, until 1939 or 1941. Federal Reserve History, the Federal Reserve System's own history site, calls it "the longest and deepest downturn in the history of the United States and the modern industrial economy." Wikipedia estimates that world GDP fell by about 15% between 1929 and 1932, US GDP by 30%, and international trade by more than 50%.
Its causes are still argued. Wikipedia states plainly that "the precise causes for the Great Depression are disputed." What follows sets out the sequence first and the explanations second.
August 1929: the turn, then the crash
Federal Reserve History dates the start to August 1929, when the expansion of the Roaring Twenties ended — before the famous crash. The stock market followed in October. Wikipedia describes Black Thursday, 24 October, when the market fell 11% at the opening bell; Black Monday, 28 October, a further 12%; and Black Tuesday, the 29th, another 11%.
The crash was the beginning of the market's fall, not the end. From September 1929 to 8 July 1932, Wikipedia records, the market lost 85% of its value. The arithmetic shows how deep that is: a share worth $100 in September 1929 was worth about $15 by July 1932. To get back to $100 from $15, it would have to rise by about 567% — which is why a fall of 85% takes far longer to recover from than the percentage alone suggests.
1930–1933: the banks fail
Federal Reserve History identifies a chain of financial crises after the crash: regional banking panics in 1930 and 1931, then national and international crises from 1931 to 1933. Wikipedia describes the December 1930 run on the Bank of United States — a private bank despite its name — which accounted for a third of the $550 million in deposits lost when 608 American banks closed in November and December 1930.
In Federal Reserve History's account, the shrinking money supply did much of the damage. From the autumn of 1930 to the winter of 1933, Federal Reserve History says, "the money supply fell by nearly 30 percent," and prices fell by an equivalent amount. That deflation, it explains, increased debt burdens, reduced consumption, raised unemployment and forced banks, firms and individuals into bankruptcy. The bottom came in March 1933, when the banking system collapsed and President Roosevelt declared a national banking holiday.
By 1933, Wikipedia records, US unemployment had reached 25%, about a third of farmers had lost their land, and 9,000 of the country's 25,000 banks had gone out of business — 36% of them.
How it went global
Federal Reserve History gives the mechanism: the international gold standard linked interest rates and monetary policy across countries, so when the Fed raised rates in 1928 and 1929 to curb stock speculation, it "triggered recessions in nations around the globe." It repeated the mistake in the autumn of 1931.
Trade policy made it worse. Congress passed the Smoot–Hawley Tariff Act on 17 June 1930; Wikipedia says the consensus among economists and economic historians is that it exacerbated the Depression, though they disagree on how much, and that retaliatory tariffs contributed to the collapse of world trade. In Europe, the collapse of Vienna's Creditanstalt in May 1931 put heavy pressure on Germany, which had depended on American loans. Wikipedia's figures for German unemployment vary even within the article: "nearly 30%" in its summary, and both 25% and "nearly 30% in 1932" in its section on Germany — another reminder to check which figure a source is using, a habit covered in reading a history dataset critically. It adds that the crisis fuelled political extremism and helped bring Hitler's Nazi Party to power in 1933.
Primary producers were hit hard. Wikipedia records crop prices falling by up to 60%, and in the Belgian Congo the price of peanuts falling from 125 to 25 centimes.
Why did it happen? The competing explanations
Wikipedia divides the explanations into two broad camps. One focuses on non-monetary causes: some see the crash itself as the main cause, others as a mere symptom of more general economic trends already under way in the late 1920s. The other, which rose to prominence later in the twentieth century, stresses failures of monetary policy: general trends explain the downturn, but not its severity and length.
Federal Reserve History takes the second view of its own institution's record. It quotes Ben Bernanke in 2002 acknowledging that the Fed's mistakes contributed to the "worst economic disaster in American history." It explains that the Fed's decentralised structure, disagreements among its governors and the "real bills" and "liquidationist" doctrines — the latter associated with Treasury Secretary Andrew Mellon — made effective action difficult. Its conclusion is measured: the Fed's efforts were "well intentioned" but "too little and too late." Weighing these explanations against each other is a good exercise in cause and effect in history.
Responses and recovery
Hoover, Wikipedia says, was unwilling to intervene heavily; from 1933 Roosevelt pursued the New Deal. Federal Reserve History lists the financial reforms that followed — the Emergency Banking Act and the Banking Act of 1933 (Glass–Steagall), the Gold Reserve Act of 1934 and the Banking Act of 1935 — and notes a double-dip recession in 1937. Wikipedia says there is no consensus among economists on what drove the expansion of the Roosevelt years, and that US unemployment was still about 15% in 1940.
The end date depends on the source. Wikipedia gives 1929–1939 and says the outbreak of war ended the Depression; Federal Reserve History says it ended during the Second World War in 1941, when full output and employment returned. For the war that preceded the 1920s, see the World War I timeline.
World History Timeline Sim, our app, lists trade collapse among the pressures in its Civilization Survival Mode and lets you browse events by year. Its simulations are not history and it is not an economics text; use it alongside coursework. More is in education and brain training.
Good to know
Frequently asked questions
Did the 1929 stock market crash cause the Great Depression?
What mistakes did the Federal Reserve make in the Depression?
How did the Depression spread from the United States to other countries?
When did the Great Depression end?
Sources
- The Great Depression (opens in a new tab)Federal Reserve History (Federal Reserve System) — accessed
- Great Depression (opens in a new tab)Wikipedia — accessed
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